Banks Board can be effective in risk management: KPMG Survey

A majority of the banks in India favour a Banks Board that can help mitigate and manage the risks of the banking industry, according to a survey conducted by KPMG.

In the survey titled Model Risk Management Survey 2015-16 analysing the importance of the Board playing an active role in management of model risk, over 50 percent of respondents from private sector and 50 percent from public sector banks opine that the Board should play a pro-active role while 17 percent from the latter felt its role should be passive.

As many as 35 percent of the respondents of the KPMG survey were public sector banks, 53 percent private sector banks and 12 percent foreign banks.

The survey comes ahead of the first meeting of the Banks Board Bureau, formed to tackle rising bad loans and appointment of directors in public sector banks, on April 8.

"Model risk cannot be eliminated, only mitigated by good management. A combination of expert modelling and robust validation, while necessary, is not sufficient to eliminate model risk," said KPMG in India partner and head, risk consulting, Mritunjay Kapur.

Noting majority of the established banks in India have witnessed single-digit organic growth rates over the past years, partner and head, financial services, Naresh Makhijani, said that in a slow growth environment, banks which make efficient use of models/analytics are likely to grow at a higher rate.

The survey reports that in case of public sector banks, 39 percent of the respondents feel that they perform advanced activities with regards to model risk management but only 61 percent have adopted basic measures.

As many as 96 percent of the private sector respondents perform basic activities with regards to model risk management, but only 44 percent of them have adopted advanced measures to manage model risk, it said.